Michigan Public Act 202 of 2017 was signed in December 2017, requiring local units of government (referred to as “unit” in this blog) to disclose information to the Michigan Department of Treasury with the intent of being more transparent to the community with the funded status and other information about their retiree health care and pension benefits. State government and state institutions of higher education are not subject to these new requirements.
Some of the disclosure information will be available from various financial and actuarial reports that are already prepared each year for the units, some information is new with this law and will require the units to have additional work done by service providers, and finally there are actions required subsequent to the disclosure if certain parameters of funding are not met.
Beginning July 1, 2018, the unit sponsoring retirement health benefits is required to:
- pay at least the normal cost for certain employees, plus premiums for retirees;
- submit an electronic summary of the retiree health care report (specific detailed requirements provided);
- have an actuarial experience study done by the plan actuary at least every 5 years; and
- have a peer actuarial audit performed, or replace the plan actuary, at least every 8 years.
Note: A unit is exempt from items (3) and (4) if eligible for an alternative measurement method under GASB accounting standards.
Beginning with years after December 31, 2017, local government units sponsoring retirement health systems and/or retirement pension systems are required to separately report the actuarial liability, funded status and actuarially determined contribution determined using Uniform Assumptions established by the Treasury.
In addition, if certain funding measures aren’t met – based on the plan’s liability and actuarially determined contribution using GASB accounting assumptions – Corrective Action Plan will be required.
For retirement health systems, a plan is considered underfunded if the system is a) less than 40% funded AND, b) if the unit is a city, village, township or county, the annual required contribution is greater than 12% of annual general fund operating revenues.
For retirement pension systems, a plan is considered underfunded if the system is a) less than 60% funded AND, b) if the unit is a city, village, township or county, the annual required contribution is greater than 10% of annual general fund operating revenues.
For both retirement health systems and pension systems, a unit will be considered underfunded if the unit has not submitted reports as required.
For both retirement health systems and pension systems, if a unit is determined to have a system that is underfunded, it will be required to establish a corrective action plan.
For fiscal years ending before December 31, 2017, the first reporting of funded status to the Treasury is due by six months after the end of the fiscal year, but no sooner than January 31, 2018.
This blog is intended as a general overview of the legislation. The full document can be read here. In addition, the Michigan Department of Treasury has issued a FAQ.
To learn more and obtain assistance with the specific reporting requirements, please contact your pension and/or health actuary.